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Bank Austria’s Snowball clause illegal

Published: July 6, 2010; 00:00 · (Vindobona)

The unilateral termination right of Bank Austria in its "Callable Snowball Floater " is unlawful according to the Supreme Court (OGH).

Bank Austria’s Snowball clause illegal / Picture: © Uni Credit Group Bank Austria

The Consumer Information Association (VKI) had sued Bank Austria on behalf of the Consumer Protection Department, because of two clauses.

Regarding the interest rate adjustment clause, the bank was proved correct.

The design of the termination right is however discriminatory according to the Supreme Court.

In 2005 Bank Austria issued so called "Callable Snowball Floaters". In the first year there was a fixed rate of interest. During the rest of the term of eight years the variable interest rate was tied inversely to the Euribor. The Bank had the right to terminate the product after one year, which was not an option for the customer. The interest rate adjustment clause on the other hand was sufficiently transparent and thus remained operative.

VKI legal expert Peter Kolba recommends affected customers to check claims for the illegal clause injured customers now to claims for compensation, since currently customers “loose out on attractive interest due to a low Euribor.”

The VKI has prompted Bank Austria to make a proposal for an amicable arrangement, similar to the decision of the Supreme Court concerning Snowball of Erste Bank. Bank Austria however said on Tuesday such a proposal cannot be made since claims need to be assessed on individual basis "since they correspond to fictive losses," said a spokesman. The Supreme Court did not decide that unilateral termination clauses were illegal as such, only if the bank cannot offer sufficient alternatives in the event of termination.